Indian economy: A shining star amidst global slowdown
As rating agency S&P has estimated that India’s GDP will grow to $7.3 trillion by 2030 and will surpass Japan to become the second largest economy in the Indo-Pacific region, Indian economy continues to shine amid darkening global prospects
India is the only star in the world that is showing resilient economic recovery in the post COVID-19 situation. Noted economist Kaushik Basu recently said that the Indian economy is a “sweet spot” and that India is in a better position than other countries to deal with the current global economic challenges.
S&P Global Market Intelligence said India’s gross domestic product (GDP) is expected to rise to $7.3 trillion by 2030 and will surpass Japan to become the second largest economy in the Indo-Pacific region.
Indeed, India continues to be on the ramp of the fastest growing economy. As per the World Bank Economic Growth Projection, India will grow at the rate of 6.3 % in FY23. Though the current year growth rate is less than the growth rate of 2022-23 (6.9%), it is still highest in the world and 1.5 percentage point higher than its closest rival China. According to the IMF Growth Projection also, India is expected to grow at the rate of 6.3% in the current fiscal year.
Let’s take a look at India’s GDP growth components. It is known that private consumption, private investment, government expenditure and net exports are four factors that determine the national income or GDP of any economy.
India’s overall exports (Merchandise and Services combined) were $60.67 billion in August 2023, exhibiting a negative growth of (-)4.17 % over August 2022, and imports were $72.50 billion in August 2023, exhibiting a negative growth of (-)5.97% over August 2022.
Engineering goods witnessed $9.05 billion worth of exports in August 2023 in comparison to $8.41 billion in August 2022, while electronic goods registered growth of 26.29% and 35.22% in August 2023 and April-August 2023. Ceramic products & glassware exports grow by29.28% in August 2023 and 15.74% in April-August 2023
Drugs and pharma exports registered 4.53% growth in August. Agricultural exports registered robust growth in August 2023: Oil Meals (57.26%), Tobacco (20.03%), Oil Seeds (17.02%), Meat, Dairy & Poultry Products (16.46%), Cashew (14.25%), Fruits & Vegetables (14.19%), Cereal Preparations & Miscellaneous Processed Items (12.88%).
On the other hand, the current trade deficit stands at $ 39.91 billion for April 23- September 23, which is less than the previous year deficit of $ 75.34 billion (April’22-Sep’22).
By and large, India’s growth story is driven by internal macroeconomic stability as various indicators show. The Consumer Confidence Index released by the Reserve Bank of India for example, has reached a four year high of 92.2.
This is good news for the market as the sentiment will remain up in the festive season that has just started and the government decision to increase 4% inflated adjusted dearness allowances for central government employees and pensioners will sustain the bullish consumption sentiment.
Indian trade bodies expect that there will be approximately 25% increase in consumer spending in the 2023 festive season with consumer expenditure of around ₹4 trillion. The Q2-23 GDP data released highlighted the fact that the private consumption expenditure increased by 6%.
India’s investment is also showing strong growth with the government-led capital expenditure leading from the front and private investment has started to grow, setting in crowding in effect. The Indian government has increased its capital expenditure budget by 37.4% at the beginning of the year and the Q2-23 data reflects that the private investment has shown significant annual growth of 7.8%.
The Foreign Direct Investment (FDI) increased by $740m in June, while the factory output data of August validates the strong demand and higher manufacturing activity as Index of Industrial Production (IIP) increased by 10.3%.
Some issues are there which can be fixed by fine tuning the ongoing policy strategy. Inflation is one such issue that needs to be addressed. The current retail inflation as measured by Consumer Price Index (CPI) was 7.4% in July. Even though it has eased to 5.02% in September, it is expected to jump on account of volatility in food and fuel prices.
On the fuel front, India is heavily dependent on petroleum imports; it is the third largest consumer of oil and imports around 80% of its total oil needs. India has managed the fuel inflation by increasing oil imports from Russia.
However, in the midst of uncertainties, India remains a very strong market with the majority of its 140 billion population being youth. It has the potential to mitigate growth risk on its own. The technological capabilities of Indians were recently demonstrated during the launch of Chandrayan III, an unmanned mission to the Moon’s South Pole; it became the first country to do so.
Another example of Indians’ resolve to handle complex economic problems, is demonstrated by financial innovation such as UPI (Unified Payment Interface) and JAM (Jan-Dhan Aadhar Mobile) trinity, that has become an engine to include 1.4b Indian to formal economy and drive economic & inclusive growth.
Therefore, India will remain the only star showing light at the end of the dark tunnel through which the world economy is currently passing through and that is why, all major global institutions are bullish on the Indian growth story.
Shishu Ranjan is Vice President of Barclays Bank and Ajit Jha is Assistant Professor at the Institute for Studies in Industrial Development (ISID), New Delhi; views expressed are their own